George Osborne poised to bring in full banking reforms

George Osborne has resisted intense pressure from Britain’s bank bosses and
decided to introduce Sir John Vickers’ banking reforms “in full” before
2015.

The reforms are designed to protect both retail saving deposits and the British taxpayer from any future bank collapses.Photo: APF/Getty Images

By Louise Armitstead and Harry Wilson

8:34PM GMT 18 Dec 2011

The Chancellor is expected to announce on Monday that the radical proposals of the Independent Banking Commission (ICB) will not be “watered down”.

He plans to push through the necessary legislation in the lifetime of this parliament – four years before the 2019 deadline for implementation proposed by the ICB.

Vince Cable, the Business Secretary, told reporters on Sunday: “Our own financial services sector needs reform. Our big banks were at the very centre of the financial crisis, what the Europeans call Anglo-Saxon financial capitalism. It needs reform.”

He added: “That’s why ... the Government is going to launch this initiative on the banks, accepting in full the Vickers commission. We’re going to proceed with the separation of the banks, the casinos and the retail business-lending parts of the banks.”

In September the ICB, led by Sir John, proposed that Britain’s retail banks should be “ring-fenced” from any investment banking operations.

The report said banks should hold core capital of 10pc, plus a further 7-10pc of capital that could take the form of “bail-in” bonds. These bonds will be able to take a loss or convert into equity to recapitalise a bank if it gets into financial difficulty.

The reforms are designed to protect both retail saving deposits and the British taxpayer from any future bank collapses. Retail savings will for the first time rank ahead of unsecured loans to the banks.

Bank bosses have warned that unsecured creditors could charge more to lend to banksbut their main concern is that reforms will be very expensive to implement.

HSBC has suggested that the costs, which could run into billions because of its large international operations, may force it to relocate from London to Paris or Hong Kong.

Sources close to the situation say that the Chancellor has bowed to pressure from HSBC and has agreed to measures designed to focus on banks’ UK rather than international balance sheet.

In a further sign that the Chancellor is keen not to provoke a revolt, a Treasury source added that the Government’s response today will be a “document for consultation” and all views will be listened to.

However Mr Osborne has already held an informal consultation over the three months since the ICB report was published on September 12. All bank chiefs have met at least once with him.

The official consultation on the paper will close in the Spring. The legislation could be announced as early as the Queen’s Speech in November.